Bradley Flansbaum

Posted 10/21/12 on The Hospitalist Leader

Brad Flansbaum, writer for The Hospitalist Leader

Uncompensated care is an overall measure of hospital care provided for which no payment was received from the patient or insurer. It is the sum of a hospital’s “bad debt” and charity care.

Charity care is care for which hospitals never expect reimbursement. A hospital incurs bad debt when it cannot obtain recompense for services rendered.  EMTALA, ability, or willingness to pay influence the latter and determine the vigor of institutional response when faced with shortfalls in payment. Hospitals must attempt to assist patients’ when they are unable to meet their obligations however.  Current law mandates they make these efforts and risk their reputation and then some, if they abrogate caregiving duty.  As a reminder, you may recall this fiasco.

Uncompensated care comprises 5-6% of total expenses for an average hospital and has risen the past few years due to the recession. Payer mix and hospital locale influence its effect on revenue, with urban and public hospitals suffering most.  Estimates range as high as 16% for these facilities.

Nonprofit hospitals receive various tax exemptions from federal, state, and local governments with the expectation that, in return, facilities will provide benefits to the community.  The definition of “benefit” and the amount hospitals contribute or are able, are subject to continued debate.

The government is examining charitable activity of late, as some hospitals are stretching its definition (at taxpayer expense).  Providing free care at a local shelter versus “complimentary screens” for LASIK surgery for example, raise levels of philanthropic nuance even your brother-in-law the tailor can parse.  Conversely, other facilities are drowning in debt, and exemptions of any size won’t rescue their dwindling coffers.  The Affordable Care Act requires hospital to improve measurement and reporting of theseservices.

With razor thin margins then, how do some hospitals cope with unpaid bills—especially when they run in the red?

In addition to improving efficiency, fundraising, pursuing non-clinical sources of revenue, and engaging in mischief, they also receive disproportionate share (DSH) payments.  If you unaware of them, stay vigilant, as your hospital may receive (and will likely experience) their loss.  Controversy exists, with some hospitals receiving DSH stipends in excess of financial need.  A brief overview:

The United States government provides funding to hospitals that treat indigent patients through the Disproportionate Share Hospital (DSH)programs, under which facilities are able to receive at least partial compensation.

Although 3,109 hospitals receive this adjustment, Medicare DSH payments are highly concentrated. Ninety three percent of total DSH payments go to large hospitals in urban areas and teaching hospitals receive about 65 percent of all DSH payments. Additionally, because Medicaid eligibility and coverage vary widely across states, Medicare DSH payments are distributed unevenly across geographic areas: the Middle Atlantic, South Atlantic, and Pacific regions account for 60 percent of all DSH payments but only 46 percent of Medicare discharges.

And on the reductions to the DSH payments:

PPACA aims to reduce:

  • Funding for the Medicaid DSH program by $17.1 billion between 2014 and 2020

PPACA requires the Secretary to:

  • Develop a methodology to distribute DSH reductions in a manner that (1) imposes the largest reduction in DSH allotments for states with the lowest percentage of uninsured or those that do not target DSH payments; (2) imposes smaller reductions for low-DSH states
  • Determine the best way to implement the cuts in a way that will target states that direct the lowest percentage of DSH allotments to hospitals with high volumes of uninsured and Medicaid inpatients. The 16 statesconsidered “low DSH states” will be reduced by 25%, and all other states will be reduced by 50%.

All hospitals will feel the cuts, but the needy will suffer “least” (relatively).  However, the increase in newly insured individuals due to the ACA may not adequately compensate teetering safety net hospitals, and the net loss may be more than they can withstand. In Massachusetts, Boston Medical Center suffered great loses after state reform was implemented–in a manner similar to the ACA–and paid volume did not materialize:

“Ironically, hospital officials blame the downturn partly on changes ushered in with the state’s groundbreaking mandatory health insurance law, which Boston Medical Center supported and that benefited many of its patients. As part of the law, the state phased out special subsidies for hospitals that treat large numbers of poor patients, a significant shock for Boston Medical Center.”

You will hear more about DSH payments as hospital margins get squeezed.  For some facilities, this cash lifeline is vital and the ensuing battles between the have and have not systems will elevate its importance as congress seeks solutions to budgetary gaps.


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Brian Klepper PhD
Brian Klepper is a health care analyst, commentator and entrepreneur. He is a Founding Principal of Health Value Direct, which connects health care purchasers to high performing, high impact health care services. He formerly served as CEO of the Washington DC-based National Business Coalition on Health, which represents 5,000 employers and unions, and some 35 million people in 52 regional business health coalitions. Much of Brian’s work has been focused on the mechanisms that underlie America’s health care cost crisis and how institutionalized clinical and business practices have distorted care and cost patterns, driving unnecessary cost. His perspective favors patients, whose medical care often exposes them to needless physical risk, and purchasers, whose health care costs are double those in other developed nations, creating a cascade of negative economic impacts.


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